Tax Bite: Planning for Entrepreneurs’ Relief

The Issue

Currently management shareholders will often not benefit from Entrepreneurs’ relief in the event of a sale because they do not meet 5% shareholding requirements (which require 5% share capital to be held along with 5% voting rights). Therefore if nothing is done they will pay capital gains tax at 28% rather than 10% in the event of a sale.

The Solution

There are a variety of solutions:

1. Issue voting shares with limited capital rights.
2. Purchase shares off other ‘friendly’ shareholders.
3. Insert a new management holding company and ensure that the management team meet Entrepreneurs’ Relief requirements for this company (making use of ‘joint venture rules’).

NB. New structure must be in place for a year before sale if it is to work.

If you would like to discuss the applicability of the above for any of your clients please contact your regular Forbes Dawson contact.

 

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